A factory purchases machinery worth ₹50 lakh At the end of the year, depreciation is ₹5 lakh. What is the Net Investment made by the firm?
Show answer & explanation
Correct answer: A
Explanation
Answer: ₹45 lakh
Explanation: Net investment is calculated by subtracting depreciation from gross investment.
Here, Gross investment = ₹50 lakh
Depreciation = ₹5 lakh
So, Net investment = ₹50 lakh − ₹5 lakh = ₹45 lakh.
Additional Key Points:
Depreciation refers to the reduction in value of fixed assets over time.
Net investment reflects the actual addition to capital stock after wear and tear.
It is an important concept in macroeconomics and national income accounting.
Higher net investment indicates economic growth.
Potential Exam-Oriented Questions & Answers:
Question: What does depreciation represent in economics?
Answer: Reduction in value of fixed assets over time
Question: What does high net investment indicate in an economy?
Answer: Economic growth and capital formation